Aurelia Butler

WASHINGTON (Reuters) – U.S. Federal Reserve officials may still be fighting a war against inflation, but they nevertheless opened the door at their May meeting to the possibility that interest rates won’t have to rise any further from the current 5% to 5.25% range.They will now have until June 14 to choose whether to walk through that door, with key data on jobs, inflation, credit conditions and the health of the banking system over the next six weeks informing the decision, public comments from Fed officials shaping the debate, and analysts already looking for clues.Here’s a guide to what’s ahead:JOBS: May 5 release, next release June 2 April jobs growth came in stronger than expected, with the economy adding 253,000 positions across a broad set of industries, and wage growth remaining at a strong 4.4% annual rate. The Fed will get a second dose of jobs data on June 2, covering May, before its June 13-14 policy meeting. Employment gains, from the Fed’s perspective, have been unsustainably strong, with officials looking for the pace of monthly job creation to slow or even turn negative, and “softness” in the labor market seen as part of what’s needed to lower inflation. Continued results like the ones seen in April could weaken the case for pausing rate hikes. (Graphic: Payroll growth remains strong – https://www.reuters.com/graphics/USA-FED/JOBS/byvrjgewnve/chart.png) (Graphic: Average hourly earnings growth – https://www.reuters.com/graphics/USA-FED/JOBS/myvmnzoaapr/chart.png) INFLATION: Next release May 10The Fed also gets a bonus month of information on prices this time with Consumer Price Index data for April and May in hand for the next Federal Open Market Committee meeting, though the May report will only arrive on the day the meeting starts. For the Personal Consumption Expenditures price index, the measure used to set the Fed’s 2% inflation target, only the April report will be available. But the two track each other to some degree, and the Fed will look for confirmation in all of the reports that the pace of price increases is continuing to slow, even if the progress is tepid. All key price indexes are currently increasing at more than double the Fed’s target. (Graphic: Rates and inflation – https://www.reuters.com/graphics/USA-FED/INFLATION/gkvlgnaywpb/chart.png) RETAIL SALES: Next release May 16Fed officials at this point give a textbook economics explanation for inflation, blaming it on a mismatch between supply and demand. Regardless of which side of the equation is more to blame, monetary policy at least in the short run works to curb spending. Officials will watch things like retail sales closely to see if households are pulling back, which should force companies to become more competitive on price. (Graphic: Monthly retail sales – https://www.reuters.com/graphics/USA-FED/RATES/klvygjxjlvg/chart.png) JOB OPENINGS: Next release May 31The Job Openings and Labor Turnover Survey, or JOLTS, became an important series for the Fed during the pandemic for its insight on labor market dynamics, including the rate at which workers are quitting – a sign of employee leverage and tight markets – and the number of open jobs – a sign of company demand for employees. Fed Chair Jerome Powell paid particular attention to last year’s record high of two open jobs for each unemployed jobseeker, a pandemic-era peculiarity that has been easing. (Graphic: Unemployed to job openings More jobs than jobseekers in the US – https://www.reuters.com/graphics/USA-FED/JOBS/egvbkmeoepq/chart.png) BANK DATA: Weekly releases Thursday and FridayTo some degree the Fed wants credit to become more expensive and less available. That’s how increases in its benchmark policy interest rate influence economic activity. But it doesn’t want financial conditions to tighten more than necessary, and recent bank failures threatened both broader stress in the industry and a worse-than-anticipated credit crunch. Weekly data on bank lending to customers, and Fed lending to banks, will be watched for signs of instability or overly restrictive lending. (Graphic: Overall bank credit – https://www.reuters.com/graphics/USA-ECONOMY/BANKS/jnvwyjlokvw/chart.png) (Graphic: Fed lending to banks – https://www.reuters.com/graphics/USA-FED/RATES/myvmoqdwevr/chart.png) FEDSPEAK: OngoingThe Fed’s internal communications rules set a “blackout” period around each policy meeting. The curtain of silence around the May meeting lifts on Friday, May 5, and Fed officials can speak publicly about their views through Friday, June 2.St. Louis Fed President James Bullard, May 5:Bullard said he was ready to keep an “open mind” on whether to raise rates in June. “I am willing to be data dependent and not prejudge…It is impressive that we moved above the 5% benchmark.”Chicago Fed President Austan Goolsbee, May 5:”We know that credit conditions like the ones we are seeing now in the past have been correlated with recessions, credit crunches,” Goolsbee told Fox News. “It’s way too premature to know what to do with monetary policy.” More

Santa Clara, California (Reuters) – Silicon Valley’s U.S. Democratic Representative Ro Khanna and the director of the National Science Foundation (NSF) warned on Friday against delays to funding for U.S. research in the face of surging technology investment by rivals such as China.While the CHIPS and Science Act authorized the NSF’s budget of $81 billion over five years, which could double the annual budget by 2027, the foundation’s director, Sethuraman Panchanathan, told Reuters he was concerned the funding could get delayed.The bill was signed by President Joe Biden last year as the U.S. looks to bring back chip manufacturing and maintain a competitive edge on technologies against adversaries, in particular China. “The time is now. This is an important moment not to cede leadership in any emerging technologies,” Panchanathan said.The NSF is a federal agency that funds a big portion of science and engineering, including research at universities.It had a budget of $8.8 billion for the fiscal year of 2022, and Panchanathan said an increase in funding would help support the NSF’s Directorate for Technology, Innovation and Partnerships, called TIP. TIP is the agency’s first new directorate in more than 30 years and would help identify research, a lot of it already funded by the NSF, that can become technology products, he said.The directorate would help build up an ecosystem of academics, corporates, venture capitalists, and others to help researchers and startups get off the ground.Panchanathan and Khanna met nearly two dozen venture capitalists, startup CEOs, and some big tech firm executives in Santa Clara, California to discuss the CHIPS and Science Act.”We’re under-investing in science in America. We are at historic lows,” Khanna told Reuters. “China is investing extraordinarily in these technologies that we would need to compete. And this is a first significant investment in that.” More

“We know that credit conditions like the ones we are seeing now in the past have been correlated with recessions, credit crunches,” Goolsbee told Fox News. “It’s way too premature to know what to do with monetary policy.” Goolsbee voted with all other Fed policymakers on Wednesday to raise the Fed’s policy rate by a quarter point to 5.00%-5.25%. Fed Chair Jerome Powell said interest rates are now close to, or maybe at the point of, being high enough to bring down inflation, and that the central bank would make “meeting-by-meeting” decisions on policy based on its read of incoming economic data. Goolsbee on Friday said he is paying particular attention to credit conditions, given the recent failure of First Republic Bank (OTC:FRCB) and the troubles of other regional banks. “It has to give you some pause” about raising rates, he said, because tighter credit conditions are likely to slow the economy. “Whatever tightening that you are going to need to do has got to take into account of … the banking system’s impact,” Goolsbee said. More

Deposits at large U.S. banks fell to $17.167 trillion from $17.180 trillion a week earlier, on a seasonally adjusted basis. Commercial bank lending increased a seasonally adjusted $41.60 billion during the week. On an unadjusted basis, loans and leases increased nearly $44 billion.Residential lending rose $5.50 billion, commercial real estate loans rose $13.7 billion, and consumer loans rose nearly $10 billion from the prior week. Commercial and industrial loans were roughly unchanged at $2.765 trillion.The fall in bank deposits come just as fresh banking turmoil emerged on Wall Street. Earlier this week, JPMorgan (NYSE:JPM) acquired First Republic as part of receivership deal after latter failed to secure funding privately.“While many thought JPM’s purchase of FRC out of receivership would stop the “who’s next?” conversations, investors are clearly continuing to focus on remaining players that are deemed the weakest,” UBS said in a recent note. More

WASHINGTON (Reuters) – St. Louis Federal Reserve President James Bullard said on Friday he was ready to keep an “open mind” about whether to raise rates or hold them steady at the Fed’s June meeting, joining the “data dependent” stance of his colleagues after a year of urging them on to consecutive rate increases.Bullard said he felt the benchmark policy rate will ultimately need to “grind higher” because he anticipates slower progress on inflation, but “I am willing to be data dependent and not prejudge…It is impressive that we moved above the 5% benchmark,” with a rate increase this week to a level between 5% and 5.25%.The comments from someone who has been an aggressive advocate of higher rates further cements this week’s Fed policy decision opening the door to a possible pause as an important turn from a run of 10 consecutive meetings, dating to March 2020, where the benchmark policy rate was heading predictably higher.Bullard said he felt the 5% to 5.25% level reached this week was still only at the “low end” of what might be needed; his own projections have suggested rates may need to move up another half point to put inflation on a steadily downward path.He said he felt there are risks, moreover, in leaving the policy rate where it is if inflation continues to move in what he considers a largely sideways direction, rather than steadily lower.The economy remained resilient, he said, citing an April jobs report showing the unemployment rate at 3.4% and an additional 253,000 positions added to payrolls. Stress in the banking industry, he said, was unlikely to cause enough of a contraction in credit to damage the macroeconomy, or cause a recession that he continues to view as unlikely.Still, “I am pleased we got over the 5% mark with the policy rate,” Bullard said. “I am willing to look at data and see where we are when we get to the next meeting” on June 13-14. More